Tim Klemz has reason to be cheerful. It’s not every day that a sales and marketing director can celebrate landing a £600,000 export order.
It is particularly welcome for the company – which makes infrared drying lamps for the paper industry – as it suffered badly in the post Lehmans recession.
“It was brutal, absolutely brutal, hideous, horrible ’’ says sales and marketing director Tim Klemz. “I never want to go through that again. Everything seized up. Our customers weren’t getting orders for their products, they weren’t even consuming spares, so it was obviously very tight indeed. There was obviously no capital expenditure going on and nobody was considering increasing production. So it was a bit like a sort of forced sabbatical, but you’ve still got an overhead that needs feeding, so it was very uncomfortable.’’
He estimates that turnover dropped by something like 80% and staff were laid off. Now the team has been built back up to six and annual turnover can be anything between £750,000 and £3m.
The business was established in 1986 by Tim’s father David, current managing director, who, prior to starting Compact, had been the European managing director of a US firm which made infrared dryers. Before that he had been the managing director of a firm in Ilkley called Spooners which makes hot air dryers.
“It struck him that it would be a good idea to combine the heat transfer effect of the infrared with the mass transfer effect of the hot air so that’s what he did,’’ explains Tim Klemz.
Compact Engineering predominantly serves the paper industry. Its lamps are used to dry the coatings on glossy, high quality cardboard packaging.
“We dry the coatings either to the point where it’s immobile on the sheet surface so that’s great for quality results, or, in the case of India, where we’re doing the whole drying so we save them the cost of a hot air dryer,’’ says Klemz.
“Or we do a thing called cross directional moisture profile control, so we take a signal from the scanners on the paper machine that monitor the moisture content across the core sheet width and feed that back to our control computers, and we then change the power input across the sheet width to produce a stable and uniform product on the reel.
“The material starts off terribly wet and it’s strained on a moving sieve and then pressed and has the water sucked out of it. Then it’s dried over a series of steam filled drying cylinders. And it works very well, but it is fairly vague, in terms of moisture removal, so you do tend to get wet streaks, and we normalise the wet streaks. So we improve the product quality, but also, taking the wet streaks out of the sheet, increases the production of the machine, quite significantly, about 10 to 15%.
“We make them and we design them ourselves and because of the design and manufacturing differences, we’re able to transfer 90% more heat per kilowatt to the sheet than an off the shelf standard lamp, which is a hell of a lot when you’re running a couple of megawatts.’’
The lamps are guaranteed for 15,000 hours in an industry where the standard is 5,000 hours.
“I’ve just been to a customer last week in South Africa and theirs is 20 years old,’’ he says.
The more of Compact Engineering’s lamps that are installed, the larger the subsequent market for spares.
The recession may have been brutal for the company, but it did have some benefits.
Klemz explains: “We’ve changed the way we do business, so it was, in a way, a blessing, because it’s allowed us to streamline the business. We can outsource more, place more responsibility on some of our sub-suppliers.’’
Some 90% of the lamps produced by Compact Engineering are for overseas markets. Paper is a universal product and, apart from India, the company has sold to China, Australia, South Africa, the US, Spain, Sweden and Norway.
The more promising markets tend to be those where there is an already developed industry and where there is an interest in improving processes.
“In Scandinavia, they are good pioneers in the industry and we can help them meet bigger challenges with existing machinery, which they’re interested in. China has a growing affluence among its population so they will inevitably consume more paper and board,’’ says Klemz.
“South America is one on our watch list. We’ve been there a few times on visits but the industry’s really not terribly mature in a way. They’ve got a lot of capacity to make tissue, but they don’t have anything, really, to make heavier weights, which is what our speciality is. And the US will come back, it’s struggling a bit at the moment because the economy’s not very clever and really paper and board consumption moves in economic step with the economic strength of the country.’’
Inevitably, exporting so much involves Klemz in a lot of travel.
He says: “They’re quite chunky bits of kit and they want to see you before they split with a whole lot of money. They want to be sure that what they’re buying is the right tool for the job and, wherever business is conducted around the world, it depends on the relationship between you and the purchaser, and I don’t think there’s a replacement for that yet. You can transfer information by e-mail and Skype and things, but there are a lot of messages which transfer face to face in a conversation which you don’t get through electronic media.’’
Before winning the Indian order, the company had to overcome a financing problem.
“Our previous bankers really gave us the run-around,’’ says Klemz. “They took four months, toing and froing, changing the terms, asking for changes in the terms and conditions of the payment criteria and the letters of credit and stuff and then they turned around and said ‘Oh we actually don’t have an appetite to write any more business in India’. So we were left rather high and dry, which is pretty disappointing, but Santander stepped into the breach and have been very good to date.’’
While Compact sells overseas, it is keen to source as much of its suppliers as possible in the UK.
Klemz says: “One of my big drivers is to use as much local workforce as I can, because it’s important to me, I want the shops to stay open, I want the pubs to stay open, I want the garages to stay open, and you only do that by bringing in money from overseas and spending it locally. One of our managers from the previous bank suggested it would be much cheaper if we got some of our components made in China and I said, ‘You just don’t get it do you? You don’t understand the importance of manufacturing?’
“While we only employ a relatively small number of people, indirectly we’re probably responsible for the employment of another 10 or 15, through our sub-contractors and suppliers.’’
So he sees manufacturing as important for the UK?
“Yes, because it creates wealth and when I say it creates wealth, it doesn’t make you rich like a footballer, but you have somebody else’s money. I mean, I always view macro-economics a bit like Monopoly, and the winner is the guy whose side of the board is jacked up with everybody else’s money underneath it. At the moment that country is probably China and, you know, when you’ve got a fiat currency - where when you’ve run out of it you can just print some more - to give faith to the market you really need something to back it up. So if you have a vibrant trade sector and you’re churning other people’s money which supports the value of your own money, that’s got to be a good thing. Printing your own stuff and having nothing to support it is pretty dangerous. I know that’s really old fashioned.’’
The current strength of sterling is not a problem for the business. The order cycle is long and typically, from an initial meeting to delivery can take between one and five years.
“At the outset the value of sterling’s not important really because they like the concept, they’re sold on the technology and normally there’s a bit of wiggle room in the final pricing,’’ he says. “Once we’ve fixed the price, if we need to, we can fix our exchange rate or we can leave it open, it depends if it’s going in our favour or not. We just keep a weather eye to what’s going on in the broader market.’’
Something that is an irritant is red tape.
“Bureaucracy is just a pain in the neck. It’s not a hindrance in that it’s a barrier, it’s just boring because we need to employ people to do it. Even just things like filling out EUR1 forms for exporting stuff to countries that have an arrangement with the UK, which saves our customers a bit of money, probably takes 40 minutes. That doesn’t sound like a big deal, but when you’ve got 10 of them to do and the person who’s doing it has got other jobs that they need to be getting on with, it’s a bit boring.’’
To maintain its market position Compact Engineering has to undertake constant R&D.
He says: “We’re always trying to stay well ahead of ourselves. We know we’re very good, but there’s always probably room for improvement. When I first arrived here 18 years ago the products we were making were radically different to today’s.
“One of the joys of making our own lamps is we can do really silly things. Because paper is made on drying cylinders, it makes sense to have a curved lamp and we can curve our lamps in the machine direction, which means we can get twice as many kilowatts into a given space in a machine, which is a huge boon as paper machine speeds increase and the mass of water that needs to be removed at any given time increases. We’re just all about sort of chipping away at little bits here and there, which become cumulative, which is how we get such a good heat transfer.
“Ideally you want to learn from your mistakes. I think that’s something that’s a shame in our culture at the moment - people get hammered for making mistakes, so nobody takes a risk. I’m a big fan for standing up, putting your head over the parapet, and having a look and see what’s going on. I hope there is a culture amongst graduates these days that it’s alright to go and take a risk. It’s alright to mess up, as long as you don’t make the same mistake twice, and you learn from it. It’s a perfectly acceptable way of running a business, to mess up every now and again.’’